Bloomberg News

Egypt Seeks $504 Million From Three Year-Bonds as Yields Drop

August 01, 2011

Aug. 1 (Bloomberg) -- Egypt plans to sell three-year bonds today ahead of the trial of former President Hosni Mubarak and as the North African nation’s 10-year dollar notes trade near a six-month high.

The Ministry of Finance aims to raise 3 billion Egyptian pounds ($504 million) from the sale, according to Central Bank of Egypt data on Bloomberg. It raised a similar amount from the auction of two-year notes last week, the first such sale since a popular revolted ousted Mubarak in February, paying a coupon of 13.1 percent. The yield on one-year treasury bills has retreated from a 31-month high in June to 12.847 at an auction on July 28.

“The three-year issuance should be well covered because we’re still talking about a medium-term investment in the absence of better opportunities for banks,” said Mohamed Kotb, Cairo-based asset management director at Naeem Financial Investments. “We expect most buyers to be local banks.”

Egypt increased its reliance on short-term debt since the start of the popular uprising against Mubarak in January, having canceled 19.5 billion pounds in bond sales until last week’s issuance. The trial of Mubarak, his sons Alaa and Gamal, former Interior Minister Habibi el-Adly and others will begin in Cairo on Aug. 3, the Middle East News Agency reported July 28, citing Mohamed Manie, assistant to the justice minister.

The country repaid the principle $1 billion and interest on its 8.75 percent 10-year bond that matured on July 11. It’s 5.75 percent 10-year dollar bond due April 2020 has since advanced, pushing the yield down to 5.55 percent on July 29, the lowest level since Jan. 14. The pound closed unchanged at 5.9568 per dollar on July 29.

Political Tensions

Tens of thousands of protesters gathered in Cairo and Alexandria on July 29 to demand the government speed up political and economic reforms. Islamists demanded the preservation of Egypt’s “Arab and Islamic identity” and implementation of Islamic laws as debate on the role of religion intensifies ahead of elections due in November.

“We’ve had six months of heightened political tensions, so it’s safe to say the risk premium has already been priced in,” Kotb said. The yield on one-year T-bills has surged 226 basis points, or 2.26 percentage points, since the start of protests in January.

Today’s sale is the second of auctions for a combined 22 billion pounds in two-year fixed-rate, two-year floating-rate and three-year bonds this quarter. The amount represents 15 percent of the government’s fund-raising for the period, with the rest coming from sales of T-bills, according to the Finance Ministry. It compares with 19 percent in the same quarter of last year.

--Editors: Shaji Mathew, Claudia Maedler

To contact the reporter on this story: Ahmed A Namatalla in Cairo at anamatalla@bloomberg.net

To contact the editor responsible for this story: Claudia Maedler at cmaedler@bloomberg.net


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